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Developing future leaders

Much is written about the importance of developing leaders and last week, at IACCM’s European conference, the concept was turned into action.

Based on a program created and designed by IACCM’s Chief Operating Officer, Sally Hughes, twenty high fliers – all under the age of thirty – gained the chance to step into a new and challenging environment. Stepping out of their normal roles in legal, supply management, contract management and commercial, they were able to appreciate the true meaning of ‘commercial thinking’ by interacting with each other. They benefitted from direct interactions and mentoring by ‘leaders of today’, they were exposed to transformational ideas and emerging technologies, they networked with each other, gaining an appreciation of commercial roles in Europe’s leading organizations. And at the conclusion of the conference, each team presented on their view of the future, how the commercial role will look five years from now.

Not surprisingly, there were many applicants for this program and those selected took real advantage of it. The feedback from their employers has been tremendous, immediately recognizing the insights (and outsights) that these future leaders gained. “The program is so important, something I feel so passionate about,” commented Sally. “There is such change going on around us – we desperately need young ambassadors, advocates for new thinking and a readiness to embrace the future. I see so many professional associations trailing behind the needs of their members; at IACCM, we are determined always to stay ahead and help our members prepare.”

The presentations were impressive and reinforce the IACCM vision of commercial teams that are increasingly integrated, breaking down some of the functional boundaries that inhibit business performance today. But they cannot yet be shared because teams from Asia and the Americas will shortly be undergoing similar experiences at IACCM’s up-coming conferences – and then IACCM members will have the chance to vote for a global winning team – future leaders who have a vision of the role they will be playing five years from now.

Do you negotiate words or principles?

New technologies provide us with the ability to discover things we never knew. This promises to be especially valuable in the world of contracts and negotiations.

Until now, many aspects of contracting have been based on a mix of accepted wisdom and personal experience or preference. For example, classical legal theory told us that the more powerful party should transfer as much risk as possible to the counter-party (and research increasingly tells us that this is no longer true). When it came to negotiation, many people espoused win-win principles in theory, yet found a variety of reasons why this didn’t happen in practice.

While most of us have firm views about what works and what doesn’t, what is important and what isn’t, these are essentially based on opinions, not facts.

Technology is starting to alter the balance. For example, last week I reviewed some work we are doing for an IACCM corporate member to assist their efforts to become more agile, to reduce cycle times and increase ‘ease of doing business’. As part of that initiative, we have been using technology to undertake review of more than 150 Master Services Agreements and exploring two key aspects:

  • to what extent do the terms in a Master Services Agreement vary and what variations are caused by customer industry?
  • which terms are most negotiated and what impact does negotiation have?

In this particular example, it turned out that 78% of the terms are broadly ‘in common’ and less than 20% are subject to regular negotiation. The most interesting point was that the 78% ‘in common’ varied very little in terms of principle; the difference was primarily choice of words – essentially, it was down to individual preferences in drafting.

Does this variability add any value or confer competitive advantage? There is little to suggest that it does. In many cases, it creates complexity and avoidable confusion, often leading to negotiations that are more about wording than about principle. A quick search showed that there was no evident impact on the frequency or success of litigation, although there is some positive impact on cycle times if the contract has been simplified through a focus on design and wording.

So what exactly is the reason that organizations cling to their specific drafting style, their particular choice of words or contract structure? I think the answer is simply custom and practice – it is a consequence of contracts being based on the personal preferences of an individual lawyer.

Our increasing ability to undertake this type of analysis will surely soon shift the approach to contracting. We will steadily develop standards of wording for contract terms and shift our focus to the principles and values – for example, the period of the agreement, the volume to be acquired, the amount of liquidated damages. In other words, contracts will be rapidly assembled from pre-established and common clauses, with sensitivity to regulatory or jurisdictional variations, and negotiation will focus on ‘filling the blanks’ around the items of specific value.

Brexit: A history of poor negotiation

The negotiating plans and positions for the UK’s departure from the European Union are starting to emerge. What lessons should we be drawing from them and the entire EU experience?

First we should reflect on factors that have contibuted to the current situation and the decision by the UK to withdraw. Several of IACCM’s ‘top pitfalls’ clearly apply. For example, Pitfall number one – lack of clarity over scope and goals – lies at the heart of the problem. Throughout the recent referendum campaign, it was obvious that there was no consensus over the vision or direction of the EU. It has been a classic example of unplanned ‘scope creep’ which shows every sign of continuing.

Pitfall number three – failure to engage stakeholders – is another endemic issue. The major changes in scope were not subject to democratic review and few efforts were made to explain how and why they benefited the overall population. Again, there is nothing about the EU’s structure or methods that suggest this will change.

Third, the EU provides a classic example of a ‘joint venture that cannot fail’. History is littered with situations where the parties decided there should be no defined exit provisions – and that invariably creates major problems. Brexit is forcing development of the terms for departure, but in an environment of acrimony and fear. EU leaders are terrified that others may want to follow the UK’s lead so they need to make departure a painful and punishing exercise.

The exit negotiations now show every sign of continuing these poor practices, working against the interests of both parties. That is because they are based on power rather than principle. This is (apparently) generating insistence by the EU that negotiations must be sequenced – ‘the divorce’ preceding any discussion over future arrangements. There is plenty of evidence that such an approach leads to a poor conclusion and most likely an arrangement that is not sustainable.

A perspective ….

Mr B joined a club. It had an initial set of rules and offered benefits that appealed to Mr B and his family. But over the years, those rules changed and the goals and benefits altered. Mr B continued to pay his dues and subscriptions (even though most other members had a free pass). He even welcomed large numbers of people from other member families who rather liked Mr B’s home and the opportunities it offered them.

The problem was, no one had asked Mr B’s family what they thought of these arrangements and one day, when they were asked, they said they didn’t like them. They declined continued membership.

The other members reacted with shock and horror, especially since they were afraid that many members of their own family might feel the same way. Lacking a clear vision or consensus about the purpose of their club, they realised that they had better punish Mr B in case others wanted to follow suit. So they started to introduce a whole new set of rules associated with leaving the club and called it ‘a negotiation’ …..

Negotiating with purpose

Back in 2011 I published a blog, ‘The Purpose of Negotiation‘. I had cause to re-read it today because it has had a sudden flurry of viewers – quite why, I don’t know.

The blog set out some perspectives on both what and how we negotiate, drawing a distinction between ‘transactions’ and ‘relationships’. It also highlighted the dilemma of when and where to focus, especially when it comes to the terms typically under the purview of lawyers.

Six years on, the issues have not changed, but there are signs of improved approaches. First, we encounter more and more lawyers who are frustrated by the repetitive nature of their engagement and appreciate this is of low value to the business. Not only in-house lawyers, but also external law firms, are interested in new contract models and ways to introduce ‘balanced standards’ that speed time to signature. IACCM has been at the heart of such initiatives and recently started to publish ‘standard principles’ that deal with some of the most frequently negotiated terms (liabilities, indemnities, service levels etc.).

The new models are being introduced to support alternative commercial approaches, based on outcomes, performance, payment by results and relational agreements. These require far more focus on governance principles – areas that fill some lawyers with horror (‘Are we really suggesting that the contract should detail what meetings need to be held?’). Others recognise that these principles are fundamental to success and seek to enhance them with imaginative approaches to dispute avoidance, appreciating that litigation (especially in a world where interdependent services are becoing more common) is not an efficient or attractive mechanism.

Perhaps to a degree these changes also anticipate the growing role that technology will play in contract negotiation. As IACCM’s imminent report on automation will reveal, there is momentum towards global standard terms that will take key areas of today’s negotiation out of the realm of agreeing words and focus entirely on the discussion of values – for example, amounts of money, periods of time, quantity of resources. Focus will move towards more definitive agreement on areas such as scope, definition of responsibilities, alignment of procedures for change, communication protocols, problem-solving and claim resolution.

‘Negotiating with purpose’ requires alignment within and between organizations regarding their  goals for establishing a contract. It means stepping outside functional positions and ensuring overall business benefit is understood and achieved. While such unity may seem obvious, it is often the exception, rather than the norm. The continued absence of disciplined negotiation planning is a major factor, but inappropriate contract templates and unimaginative use of software also contribute to the underperformance of many agreements.


If you want success, embrace pessimism

“Every human will disappoint you and you will do the same to them.”

That is the somewhat downbeat – but perhaps realistic – assessment of Alain de Botton in an Opinion column in the New York Times. His point is that the perfect fit is an illusion and many of the ‘faults’ in a relationship will not become evident until we have entered into it. Instead of becoming frustrated or levelling blame, we will succeed only if we recognize the need to manage differences and work through them.

These observations have direct relevance to relationships between buyers and suppliers. Often they engage with each other in a spirit of great optimism and, steadily, disappointment sets in. In a field such as outsourcing, where ‘intimacy’ is essential, failure rates are variously estimated at somewhere between 40 – 60%.

So what do commercial professionals need to do to raise the chances of mutually successful outcomes?

1) Recognize that sutainable relationships must be win-win. Mutual success is a pre-requisite and each party needs to feel the other cares about and respects their goals.
2) Ask searching questions when evaluating or selecting a customer or supplier. Pessimism is no bad thing so long as it creates a healthy skepticism and does not yield to cynicism.
3) Analyse the depth of interdependency that will be needed. Not all relationships are equal and they require varying depth and frequency of interaction depending on issues such as levels of value, the extent of uncertainty or volatility, the likelihood of change, the nature of risk.
4) Define and agree governance levels and mechanisms that are appropriate to the extent of interdependency. This is where standard contract templates and rigid approaches to compliance frequently stand in the way of good relationships.
5) Appreciate that differences of culture, style or approach can be enriching. We say we want innovation and continuous improvement. Managed well, differences become a source of those ideas and inspirations. Managed poorly, they become a source of tension and anger.

Ultimately, we must exercise good judgment and test for fundamental issues of incompatibility – for example, dishonesty, incompetence, lack of capacity or capability. But once we have made our selection, we share responsibility to make it a success. “Compatibility,” states Mr. de Botton, “is an achievement of a good relationship; it must not be its precondition.”

Communication takes many forms

“Supply chain management is a relationship business,” says Adrian Gonzalez on Talking Logistics. His interview with Brent Nagy, VP of Enterprise Customer Strategy at C.H.Robinson makes many good points – but with a few gaping holes.

The article identifies alignment, synchronization and communication as key to success, focusing on the need to engage stakeholders, both internal and external. Mr. Nagy rightly highlights the diversity of those who must be involved, to ensure seamless understanding: ““First is alignment and really understanding the customer and their needs and challenges, and then synchronizing how the work is done and prioritized. You can’t have one function tripping over the other, each with their own agenda, working in silos…It’s really understanding who owns the relationship, how the relationship from an alignment standpoint cascades down to operations, and having clearly defined roles and responsibilities for everyone involved.”

These comments align well with IACCM’s research, ‘The Ten Pitfalls of Contract Management’. Number one, clarity of scope and goals; number three, engaging stakeholders; number six, relationships lack flexibility and governance; number eight, poor handover to implementation. I also especially liked the observations regarding the need to embrace trading partners rather than hold them at arm’s length: “Treating your trading partners as an extension of your synchronization and alignment process is just as important. If you stop at your four walls and don’t extend it externally, you’re really opening yourself up to an environment where your partners don’t understand your strategy and needs, and if you compound that problem by myopically focusing on driving down prices, you will miss out on [opportunities to achieve greater value and benefits]. You can have the best and most aligned strategies on the planet internally, but if you don’t translate that externally…you’re opening yourself up to a big risk relative to how well these partner networks align with yours.”

While the article recognizes that operating across multi-tiered stakeholder networks is critical and that it often fails, it is rather less assured when it comes to offering a remedy. The answer, it seems, is communication – and ideally that should be face-to-face. But this ignores the realities of today’s business environment – the very environment that has made for such diversity and such complex networks. So relying on methods that worked 25 years ago is not the answer. In my experience, successful companies are tackling this issue in two ways:

  1. They recognise that the contracting process must address a disciplined approach to governance and performance management. This means working together to define approaches to balanced incentives, problem solving, joint working etc. These must be documented and distributed, wherever possible embedded into common software platforms. Without these actions, people will not be in step – the3 network and its interdependencies are simply too complicated.
  2. There is a fully documented communications protocol. Mr. Nagy is correct in calling out how tough conversations are often avoided by use of email or social networking tools. Such an approach typically worsens the situation – it is avoidance of the problem. Within that protocol, face to face meetings definitely have their place, even if they are sometimes undertaken via video conference – an almost inevitable consequence of our global trading relationships.

Once again, Talking Logistics has offered a thought-provoking insight to the challenges of undertaking successful business today.


Are you an ostrich or a meerkat?

When it comes to facing facts, do you bury your head or become obsessed?

Behavioural economists continue to unearth interesting observations about human attributes that have direct impact on performance. For example, they have discovered that people who suffer from the ‘ostrich effect’ regularly monitor activity or progress while things are going well, but prefer to bury their heads when things go badly. They consciously avoid valuable information and the potential need for action.

On the other hand, some (the meerkats) become obsessed and check the data with alarming freqency.

For those who observe the effectiveness of contract management, both behaviors are perhaps familiar. Certainly the ostrich effect helps us understaand why poor performance can often pass unchallenged until it suddenly turns into a crisis and dispute. Once again, it points to the fact that human behavior underlies so many problems; machines that are programmed to monitor performance show no such traits or emotions – they just react according to their programming.

But the problems do not stop there. When forced to confront an issue, you might hope that people would gather the facts and then take a balanced view to support subsequent action. However, they don’t. Researchers discovered that, far from appreciating and evaluating opposing viewpoints, many people mine the information for ways to support their existing beliefs. In other words, if you take the view that all suppliers or all customers lack integrity, you will select only the data that supports that belief.

So in summary, we avoid unpleasant information even when it is to our benefit to deal with it and, when forced to confront a situation, we seek the information that supports our preconceptions.

It’s actually a wonder that so many contracts succeed!